Pier 1 Turnaround Slowed but 'Stabilized'

Retail Editor 1, James Mammarella, April 27, 2009

Struggling home furnishings specialty retailer Pier 1 Imports posted a deeper loss in 2008, but executives painted a picture of a stabilized, disciplined strategy during the Q4 and full year earnings call.

"The recession has hit us hard," Alex Smith, president and ceo, told analysts. Smith reiterated that the Pier 1 plan to break even and improve margins had been on track until last August, and that "what we initially expected to be a three-year turnaround is going to take longer."

Rather than a break-even, Pier 1 recorded a full year net loss of $129.2 million, or $1.45 per share — broadened from the prior-year loss of $96.0 million, or $1.09 per share.

For the quarter ended February 28, Pier 1 logged a net loss of $29.4 million, or 33 cents per share — in sharp contrast to the year-ago net profit of $13.7 million, or 16 cents EPS.

However, Cary Turner, evp and cfo, ticked off a number of solid statistics regarding the 1,092-store company's credit facility, debt and cash positions, the closing of 26 stores and the Chicago distribution center, lower cap ex plans, and some progress in rental reductions — as well as the cutting of approximately $100 million from year-end inventory.

Smith lauded his merchants for their better buying in 2008, which he said continues in the current year; he said that average ticket and store traffic metrics have stabilized in early 2009.

"We are seeing meaningful increases in the percentage of our sales generated by repeat and continuity skus — which is helping us to reduce our markdown exposure going forward," Smith said.

Pier 1 saw sales fall 12.6% to $1.32 billion for the year, with comps down 9.2%. Sales in Q4 sagged 11.0% to $389.2 million as comps dropped 9.7%.

Looking ahead Smith noted, "We will have some sku reductions, but the treasure hunt feel of our stores will remain." He added that the furniture segment — about 40% of sales — has been "quite resilient recently."

Speaking about the vendor community, Smith said that Pier 1 is seeing some lower costs "compared to six months ago."

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